ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

Transcription

1 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. (Incorporated in Hong Kong with limited liability) (Stock Code: 01828) ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017 Group revenue increased by 8.7% to HK$50,506 million Profit attributable to shareholders increased by 56.9% to HK$802 million Earnings per share were HK cents, increased 56.7% Proposed final dividend with scrip option of HK cents per share Full year dividend increased by 100.8% to HK cents per share - 1 -

2 CHAIRMAN S LETTER TO SHAREHOLDERS Dear Shareholders, Last year, I shared with you our roadmap for change, outlining our long-term priorities for making Dah Chong Hong a more dynamic business in the future. After a year of implementing these commitments, I am now pleased to share with you what I consider an initial report card. Where do we stand one year on? Our business is stronger, our opportunity is larger, and our focus is sharper. In this letter, I will detail the milestones of the past year and our near-term priorities. I hope to leave you with a sense of our sustained focus on effecting deep and substantive change and, above all, of the momentum we are building across every level of the business. OPERATING RESULTS For 2017, profit attributable to ordinary shareholders was HK$802 million, representing a solid 57% increase over Our board recommends a final dividend of HK cents per share to shareholders, payable in cash or in new shares, thus giving a total dividend of HK cents per share for the year 2017, up from 8.44 HK cents per share in The significant growth in profitability was driven primarily by three factors: a marked improvement in the performance of our mainland China motor business, the full-year contribution from LF Asia, and gains from the disposal of non-core assets. Profit from our motor business rose 51% to HK$1,198 million. The substantial increase was driven by our mainland China operations, which recorded a 213% year-on-year growth in profit as a result of improved margins and greater operating efficiency. In Hong Kong, the impending revision of the electric car tax concession shifted market demand, hence profit fell by 28%. Profit from the consumer products business was HK$105 million, a 48% reduction from This was primarily due to losses incurred in our mainland China operations resulting from inventory clearance and promotional discounting during a period of restructuring. Our operations in Hong Kong and Macao also registered a drop in profit as a result of increasing pricing pressure on the commodity food business. Our market opportunity in mainland China remains large. But the dynamics are shifting fast, and competition is fierce. The reality is, we have been slow to adapt. To remain a player, we urgently need to get our house in order and apply lessons learned from the successful transformation of our mainland China motor division. More stringent control of inventory levels and promotional spending are just two of the immediate actions we will take. We will also finalise our operational restructuring and complete a thorough review of our brand portfolio and channel mix. In 2018, my focus and that of the management team is to restore health to this business

3 CORPORATE DEVELOPMENTS In 2017, we made fundamental changes to how we manage the company. We made some hard decisions, and we have implemented new initiatives. Results are emerging, and we are determined to continue driving the changes to the very core of our businesses as we align our culture with operations to achieve growth. Building a performance culture Our top priority is to cultivate a strong performance-oriented culture at every level of our company. From values and mindset down to incentives, the changes have been profound. One example is the way we are mobilising the front line. We have customised and rolled out a more sophisticated system for setting, measuring and compensating performance among all front line staff. A new KPI matrix and a super bonus system incentivise greater unit and cross sales. This is working. It was one of the factors contributing to the more than three-times profit rise registered by our mainland China motor division. These outcomes bode well for the future. But this is only the beginning. Improving operational efficiency Our consumer products business expanded considerably with the addition of LF Asia. Over the course of 2017, we worked to integrate the two organisations to realise synergies in our operations and management structure. More specifically, the food and FMCG business in Greater China has been consolidated into DCH s existing platform and the healthcare business re-positioned and rebranded as DCH Auriga. In the back-office, we aligned systems and administration across the core functions of information technology, human resources and finance. Productivity was enhanced, and operational efficiency improved as a result. We also optimised resource allocation across quality control, warehousing and logistics. Since April 2017, DCH food manufacturing facilities have been centralised into a single centre at our ISO and HACCP certified Yuen Long facility. The relocation has facilitated closer coordination, a streamlined work flow, increased efficiency and capacity maximisation while also enabling total transparency and control of an end-to-end supply chain

4 Investing in new growth A performance culture and efficient operations, though critical to our future, are not enough to keep us agile and ahead of emerging trends. For that, we need to make investments and develop in new ways. In 2017, we made several acquisitions in the motor business. Demand for luxury vehicles is on the rise in mainland China, particularly within lower-tier cities. To increase our exposure to this growing segment, we acquired one Audi and two Mercedes-Benz dealerships, and secured authorisations for three new Mercedes-Benz 4S shops, all within Zhejiang Province of eastern China. Already, our greater presence in the luxury vehicle market is delivering results. In fact, it was a major contributor to the excellent performance of the motors arm. Going forward, we will continue to look for opportunities to expand in this segment. We are also investing in new infrastructure. Starting from mid-2018, our new DCH Logistics Centre in the Hengqin District of Zhuhai, just across from Macau and at the heart of China s Greater Bay Area, will optimise our distribution reach. This 45,000 square metre site will strengthen our supply chain network in southern China. In a similar development, we are now finalising plans to build two centralised storage facilities for DCH Auriga, our healthcare business that was rebranded following the LF Asia acquisition. Located in Hong Kong and Thailand, these state-of-the-art facilities will be self-contained, automated and equipped with specialty cold chain storage capabilities. They will shorten delivery cycles down to a matter of hours, minimise human error from the pick and pack process, and facilitate secure full-service solutions for our principals. Finally, we are investing to create new revenue streams and stronger relationships with principals. Last autumn, together with our parent company CITIC Pacific, we launched the Tamar Alliance Fund, a private equity vehicle focused on consumer and healthcare opportunities expanding across Asia. This new platform enables us to directly capitalise on the brands best positioned to capture the growing consumer demand driven by the increasingly affluent middle class in Greater China and Southeast Asia. It will further align our interests with both existing and future principals as they enter and grow in this dynamic region. This is, as they say, a win-win situation

5 OUTLOOK From day one, thinking from the customer s perspective has been our promise. It has always been the reason brand partners choose us to steward their growth in Asia. It built our business, and it s what we do best. But increasingly, we need to think beyond what customers want today. We need to know what and how they will buy tomorrow. And we must have the internal culture and operational agility to act on those insights and evolve our businesses. Our energy is renewed, and we have greater purpose. What we have achieved in the last year was no small feat. But we still have many challenges ahead. While competition and complexity are inevitable in our markets, we are now better placed than before to capture the new and growing opportunities throughout Asia. My goal a year from now is to show sustained momentum in our long-term priorities. I am confident in our capacity to succeed. Above all, I remain focused on continuing to create value for you, our shareholders as well as all our principals, partners, customers and employees. Thank you for your support. Zhang Jijing Chairman Hong Kong, 8 March

6 CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2017 HK$ million Note Revenue 2(a) 50,506 46,462 Cost of sales (44,312) (41,001) Gross profit 6,194 5,461 Other net income 3 1, Net gain on disposal of subsidiaries 4(a) Net gain on disposal of an associate 4(b) - 89 Selling and distribution expenses (3,908) (3,416) Administrative expenses (1,918) (2,105) Profit from operations 1,427 1,065 Net gain on remeasurement of an investment property reclassified as asset held for sale Net gain on remeasurement of investment properties 7 3 Net gain on remeasurement of financial assets at fair value through profit or loss 16 - Finance costs 5(a) (193) (189) Share of profit after tax of associates Share of profit after tax of joint ventures Profit before taxation 5 1,292 1,097 Income tax 6 (354) (465) Profit for the year Attributable to: Shareholders of the Company Non-controlling interests Basic and diluted earnings per share (HK cents)

7 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 HK$ million Profit for the year Items that may be reclassified subsequently to profit or loss: Exchange differences on translation of financial statements of entities outside Hong Kong: - subsidiaries 722 (651) - associates and joint ventures 25 (31) Effect on cash flow hedge, net of tax 12 (9) Reserves released upon disposal of subsidiaries 3 11 Reserves released upon disposal of an associate - (6) Item that will not be reclassified subsequently to profit or loss: Revaluation gain recognised upon transfer from property held for own use and lease prepayments to investment property, net of tax 1 11 Other comprehensive income / (loss) for the year, net of tax 763 (675) Total comprehensive income / (loss) for the year 1,701 (43) Attributable to: Shareholders of the Company 1,521 (121) Non-controlling interests ,701 (43) - 7 -

8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2017 HK$ million Note Non-current assets Property, plant and equipment 3,784 3,318 Investment properties Lease prepayments Intangible assets 1,880 1,154 Goodwill 2,760 2,403 Interests in associates Interests in joint ventures Other non-current assets Deferred tax assets ,026 8,694 Current assets Inventories 9 6,891 7,161 Asset held for sale Trade debtors and other receivables 10 8,148 8,013 Current tax recoverable Cash and bank deposits 1,138 1,160 16,225 16,721 Current liabilities Borrowings 2,864 2,357 Trade creditors and other payables 11 8,442 7,918 Current tax payable ,589 10,431 Net current assets 4,636 6,290 Total assets less current liabilities 15,662 14,984 Non-current liabilities Borrowings 4,063 5,067 Other non-current liabilities Deferred tax liabilities ,950 5,740 Net assets 10,712 9,244 Capital and reserves Share capital 12 1,535 1,477 Other reserves 8,610 7,255 Total equity attributable to shareholders of the Company 10,145 8,732 Non-controlling interests Total equity 10,712 9,

9 NOTES 1. Basis of Preparation The financial information relating to the years ended 31 December 2016 and 2017 included in this preliminary announcement of annual results 2017 does not constitute Dah Chong Hong Holdings Limited ( the Company ) and its subsidiaries (collectively referred to as the Group ) statutory annual consolidated financial statements for those years but is derived from those financial statements. The consolidated financial statements have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards ( HKFRSs ), which collective term includes all applicable individual HKFRSs, Hong Kong Accounting Standards ( HKASs ) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ( HKICPA ), accounting principles generally accepted in Hong Kong and the requirements of the Hong Kong Companies Ordinance. The consolidated financial statements also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The HKICPA has issued several amendments to HKFRSs that are first effective for the current accounting period of the Group. Adoption of these developments does not result in a significant impact of the Group s results of operations and financial position for the current or comparative periods nor any significant change in the Group s accounting policies. The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. The preparation of consolidated financial statements in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The figures in respect of the Group s consolidated statement of financial position, consolidated statement of profit or loss, consolidated statement of comprehensive income and the related notes thereto for the year ended 31 December 2017 as set out in the preliminary announcement have been agreed by the Group s auditor, KPMG, to the amounts set out in the Group s audited consolidated financial statements for the year. The work performed by KPMG in this respect did not constitute an assurance engagement in accordance with Hong Kong Standards on Auditing, Hong Kong Standards on Review Engagements or Hong Kong Standards on Assurance Engagements issued by the HKICPA and consequently no assurance has been expressed by KPMG on the preliminary announcement. The Company will deliver the financial statements for the year ended 31 December 2017 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Companies Ordinance in due course. The Company has delivered the financial statements for the year ended 31 December 2016 to the Registrar of Companies as required by the Hong Kong Companies Ordinance

10 1. Basis of Preparation (Continued) The Company s auditor has reported on the financial statements of the Group for both years. The auditor s reports were unqualified; did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying its reports; and did not contain a statement under sections 406(2), 407(2) or (3) of the Hong Kong Companies Ordinance. 2. Segment Reporting The Group manages its businesses by business line and geographical location. In a manner consistent with the way the information is reported internally to the Group s senior executive management for the purposes of resource allocation and performance assessment, the Group has identified the following reportable segments: (i) Motor Business (Hong Kong & Macao / Mainland China / Other Markets) The motor business mainly consists of the operations of (i) motor vehicle distribution and dealership business; and (ii) other motor related business, which includes operation of independent service outlets, original equipment parts trading, used car trading, provision of after-sales services, motor leasing, sales of yachts, environmental and engineering businesses, as well as airport and aviation support businesses. The Other Markets geographical segment mainly covers business operations in Singapore and Taiwan. (ii) Consumer Products Business (Hong Kong & Macao / Mainland China / Other Markets) The consumer products business primarily consists of the operations of (i) trading and distribution of food commodities, distribution of fast moving consumer goods, food manufacturing and retail of food products; (ii) distribution of electrical products; (iii) trading and distribution of consumer and healthcare products business conducted by DCH Auriga Holding Limited (formerly known as LF Distribution Holding Limited) and its subsidiaries ( IMSA and DCH Auriga Group ) acquired on 30 June 2016; and (iv) provision of a wide range of integrated professional logistics and supply chain management solutions and cold chain management services. The Other Markets geographical segment mainly covers business operations in Japan, Thailand, Malaysia, Singapore, the Philippines, Indonesia and Brunei. (iii) Other Businesses Other businesses include small operating segments namely property business, and other miscellaneous businesses where the revenue and results from these segments are below the quantitative threshold for determining a reportable segment

11 2. Segment Reporting (Continued) The Group s senior executive management monitors the results attributable to each reportable segment on the following basis: The segment revenue of the Group is based on business lines and geographical location of customers. Income and expenses are allocated to the reportable segments with reference to sales generated by those segments and expenses incurred by those segments or which otherwise arise from the depreciation or amortisation of assets attributable to those segments. The inter-segment transactions are conducted on normal commercial terms and are priced with reference to prevailing market prices and in the ordinary course of business. Performance is measured based on segment result from operations and segment profit or loss after taxation which includes the Group s share of profits and losses after tax of associates and joint ventures. Items not allocated to the reportable segments comprise: (i) corporate expenses and recharges (mainly costs of supporting functions that are centrally provided by head office to all operating segments), (ii) amortisation of fair value adjustments arising from business combinations, (iii) fair value gain / loss and (iv) impairment loss on non-current assets other than amounts due from associates and joint ventures, finance lease receivables, prepaid long term assets and trade debtors

12 2. Segment Reporting (Continued) (a) Segment results An analysis of the Group s segment results by reportable segment is as follows: Motor Business Consumer Products Business (Note (ii)) HK$ million Hong Kong Mainland Other Hong Kong Mainland Other Other Inter-segment Year ended 31 December 2017 & Macao China Markets Sub-total & Macao China Markets Sub-total Businesses elimination Total Revenue from external customers 5,679 26,219 2,170 34,068 8,809 4,710 2,887 16, ,506 Inter-segment revenue (102) - Segment Revenue 5,684 26,219 2,170 34,073 8,810 4,711 2,887 16, (102) 50,506 Segment result from operations (Note (i)) , (198) ,729 Share of profit / (loss) after tax of associates (1) - 14 Share of profit after tax of joint ventures Segment profit / (loss) before taxation (Note (i)) , (188) ,764 Segment income tax (Note (i)) (93) (204) (39) (336) (45) (8) (17) (70) (10) - (416) Segment profit / (loss) after taxation (Note (i)) , (196) ,348 Motor Business Consumer Products Business (Note (ii)) HK$ million Hong Kong Mainland Other Hong Kong Mainland Other Other Inter-segment Year ended 31 December 2016 & Macao China Markets Sub-total & Macao China Markets Sub-total Businesses elimination Total Revenue from external customers 5,661 24,554 2,379 32,594 7,235 4,793 1,802 13, ,462 Inter-segment revenue (105) - Segment Revenue 5,664 24,555 2,379 32,598 7,235 4,794 1,802 13, (105) 46,462 Segment result from operations (Note (i)) , (89) ,407 Share of profit after tax of associates Share of profit after tax of joint ventures Segment profit / (loss) before taxation (Note (i)) , (81) ,437 Segment income tax (Note (i)) (91) (147) (39) (277) (62) (22) (6) (90) (8) - (375) Segment profit / (loss) after taxation (Note (i)) (103) ,062 Notes: (i) (ii) (iii) Segment results are before corporate expenses and recharges and the corresponding tax impacts. As a result of re-alignment of business segments for the purposes of reporting to the Group s senior executive management, segment revenue and results from the business as conducted by IMSA and DCH Auriga Group have been included in Consumer Products Business. Its results for July to December 2016 were presented as a separate operating segment in the 2016 annual financial statements. Comparative figures presented above have been adjusted to conform to current year s presentation

13 2. Segment Reporting (Continued) (b) Reconciliation between segment profit after taxation and profit for the year HK$ million Segment profit after taxation 1,348 1,062 Net gain on - remeasurement of investment properties remeasurement of financial assets at fair value through profit or loss remeasurement of an investment property reclassified as asset held for sale disposal of properties held for own use 64 - Amortisation of fair value adjustments on property, plant and equipment, lease prepayments and intangible assets arising from business combinations (87) (82) Net provision of impairment losses on - property, plant and equipment (21) (6) - intangible assets (20) (6) - goodwill - (5) Net fair value loss on foreign currency forward contracts (1) (2) Net fair value gain on interest rate swaps and cross currency swap - 16 Share-based payments 3 (6) Transaction costs incurred for business combination - (39) Unallocated corporate expenses (433) (401) Reconciliation items before taxation (472) (340) Tax impact: Additional assessments on certain commission income for prior years - (38) Net tax effect on the above reconciliation items 62 (52) Reconciliation items net of taxation (410) (430) Profit for the year

14 2. Segment Reporting (Continued) (c) Other segment information The following table sets out other information by reportable segment. Segment results are arrived at after charging / (crediting): Motor Business Consumer Products Business (Note) HK$ million Hong Kong Mainland Other Hong Kong Mainland Other Other Year ended 31 December 2017 & Macao China Markets Sub-total & Macao China Markets Sub-total Businesses Total Segmental depreciation and amortisation Segmental interest income (1) (34) (1) (36) (5) (3) (2) (10) (1) (47) Segmental interest expense Segmental write-down of inventories Segmental reversal of write-down of inventories (8) (9) (1) (18) (15) (27) (14) (56) - (74) Segmental net provision / (reversal) of impairment losses on trade debtors and other receivables (6) 51 (5) Segmental net gain on disposal of subsidiaries - (2) - (2) - (14) - (14) - (16) Motor Business Consumer Products Business (Note) HK$ million Hong Kong Mainland Other Hong Kong Mainland Other Other Year ended 31 December 2016 & Macao China Markets Sub-total & Macao China Markets Sub-total Businesses Total Segmental depreciation and amortisation Segmental interest income (1) (56) - (57) (2) (2) (1) (5) - (62) Segmental interest expense Segmental write-down of inventories Segmental reversal of write-down of inventories (9) (3) (2) (14) (5) (10) (8) (23) - (37) Segmental net provision / (reversal) of impairment losses on trade debtors and other receivables (1) Segmental net gain on disposal of subsidiaries (244) - (244) (5) (249) Segmental net gain on disposal of an associate (89) - (89) - (89) Note: The segment information from IMSA and DCH Auriga Group has been included in Consumer Products Business (see Note 2(a)(ii)). Comparative figures have been adjusted to conform to current year s presentation

15 2. Segment Reporting (Continued) (d) Geographic information The Group operates in three major geographical segments: Hong Kong and Macao, mainland China and other markets. Other markets mainly represent Japan, Singapore, Thailand, Malaysia, Taiwan, the Philippines, Indonesia and Brunei. The geographical segment of revenue from external customers is based on the geographical location of customers. The geographical segment of non-current assets is based on the geographical location of the assets. An analysis of the Group s revenue from external customers and non-current assets (excluding deferred tax assets) by geographical segment is as follows: Revenue from external customers Non-current assets HK$ million Hong Kong & Macao 14,512 12,909 3,085 2,885 Mainland China 30,930 29,347 7,041 4,640 Other Markets 5,064 4, ,067 Total 50,506 46,462 10,942 8, Other Net Income HK$ million Commission income Handling and service charge income Advertising and other subsidies from suppliers Net gain / (loss) on disposal of property, plant and equipment (Note) 64 (15) Government subsidies Interest income from bank deposits Forfeited deposit from customers 7 6 Other interest income 4 1 Net fair value loss on foreign currency forward contracts (1) (2) Net loss on disposal of joint ventures (2) - Net exchange (loss) / gain (6) 1 Others Total 1, Note: During the year ended 31 December 2016, an ammonia emission incident occurred in a logistics centre of the Group located in Shanghai. The Group engaged independent third parties to assess the damages and claims arising from the incident. Based on the assessment, the Group wrote off certain plant and equipment amounted to HK$30 million which was included in Net loss on disposal of property, plant and equipment for the year ended 31 December The Group also incurred incremental storage costs and losses for claims totalling HK$33 million which were included in Cost of sales and Administrative expenses for the year ended 31 December 2016 respectively

16 4. Net Gain on Disposal of Subsidiaries and an Associate (a) Net gain on disposal of subsidiaries Included in the net gain on disposal of subsidiaries during the year ended 31 December 2016 is an amount of HK$244 million which represents the gain on disposal of Guangdong Victory Electrical Appliances Manufacturing Co., Ltd, a wholly-owned subsidiary of the Group, to an independent third party at a cash consideration of RMB418 million (equivalent to approximately HK$467 million). Remaining consideration receivable of HK$244 million has been received during the year ended 31 December During the year ended 31 December 2017, the Group has completed disposals of certain immaterial subsidiaries with net gain on disposal of HK$16 million recorded. (b) Net gain on disposal of an associate During the year ended 31 December 2016, the Group disposed of its entire 26.04% interest in Shanghai Shineway DCH Co., Ltd ( Shanghai Shineway ), at a consideration of RMB208 million (equivalent to approximately HK$241 million). Shanghai Shineway is mainly engaged in the production and sales of meat and related food products in mainland China. The transaction resulted in a net gain on disposal of HK$89 million

17 5. Profit Before Taxation Profit before taxation is arrived at after charging / (crediting): HK$ million (a) Finance costs Interest on bank advances and other borrowings Other interest expenses 1 - Total (b) Other items Amortisation - lease prepayments intangible assets Depreciation Share-based payments (3) 6 Write-down of inventories Reversal of write-down of inventories (74) (37) Net provision / (reversal) of impairment losses on - property, plant and equipment intangible assets goodwill amounts due from joint ventures (54) 11 - trade debtors and other receivables Direct write off of trade debtors and other receivables

18 6. Income Tax The provision for Hong Kong Profits Tax for 2017 is calculated at 16.5% (2016: 16.5%) of the estimated assessable profit for the year. Taxation outside Hong Kong is charged at the appropriate current rate of taxation ruling in the relevant jurisdiction. Income tax in the consolidated statement of profit or loss represents: HK$ million Current tax - Hong Kong Profits Tax - Provision for the year Under-provision in previous years (Note (i)) Current tax - Outside Hong Kong - Provision for the year Under-provision in previous years Deferred tax - Origination and reversal of temporary differences (170) 12 - Utilisation of deferred tax assets on tax losses (140) 83 Withholding tax Total Notes: (i) During the year ended 31 December 2016, the Hong Kong Inland Revenue Department had raised additional assessments on certain commission income for prior years. This tax case had been settled during the year with additional tax charge of HK$38 million. In accordance with a Deed of Indemnity dated 28 September 2007, CITIC Limited, an intermediate holding company of the Company, agreed to indemnify the Group in respect of taxation claims if such claims subsisted prior to the listing of the Company on 17 October In this respect, HK$22 million has been recovered from CITIC Limited and such amount was credited to general reserve. (ii) Current tax recoverable and current tax payable in the consolidated statement of financial position are expected to be recovered / settled within one year

19 7. Dividends (a) Dividends payable to equity shareholders of the Company attributable to the year: HK$ million Interim dividend declared and paid of 5.05 HK cents (2016: 4.75 HK cents) per share Final dividend proposed after the end of the reporting period of HK cents (2016: 3.69 HK cents) per share Total The final dividend proposed after the end of the reporting period has not been recognised as a liability at the end of the reporting period. (b) Dividend payable to equity shareholders of the Company attributable to the previous year, approved and paid during the year: HK$ million Final dividend in respect of previous financial year, approved and paid during the year of 3.69 HK cents (2016: 6.40 HK cents) per share Earnings Per Share (a) Basic earnings per share The basic earnings per share for the years ended 31 December 2016 and 2017 are based on the profit attributable to shareholders of the Company of HK$802 million (2016: HK$511 million) and the weighted average number of ordinary shares in issue during the year which is calculated as follows: Number of ordinary shares Issued ordinary shares at 1 January 1,832,133,000 1,832,133,000 Effect of scrip dividend issued 2,817,810 - Weighted average number of ordinary shares 1,834,950,810 1,832,133,000 (b) Diluted earnings per share The diluted earnings per share for the years ended 31 December 2016 and 2017 are the same as basic earnings per share as the potential ordinary shares in respect of outstanding share options are anti-dilutive

20 9. Inventories HK$ million Finished goods 6,822 7,079 Raw materials Work-in-progress At 31 December 6,891 7,161 HK$ million Motor Business 4,174 3,931 Consumer Products Business 2,717 3,230 At 31 December 6,891 7, Trade Debtors and Other Receivables HK$ million Trade debtors and bills receivable Within 3 months 3,992 4,121 More than 3 months but within 1 year Over 1 year ,502 4,625 Other receivables, deposits and prepayments 3,164 3,129 Finance lease receivables Gross amounts due from customers for contract work 6 7 Amount due from an intermediate holding company 1 - Amounts due from fellow subsidiaries 1 1 Amounts due from associates 6 5 Amounts due from joint ventures 12 - Amounts due from holders of non-controlling interests Derivative financial instruments ,592 8,404 Less: Non-current finance lease receivables (437) (352) Non-current trade debtors (7) (39) At 31 December 8,148 8,013 The Group grants credit to its customers of the major reportable segments as below: Reportable segments Motor Business Consumer Products Business Credit terms in general Cash on delivery to 90 days Cash on delivery to 105 days

21 11. Trade Creditors and Other Payables HK$ million Trade creditors and bills payable Current or within 1 month 3,389 3,552 More than 1 month but within 3 months More than 3 months but within 6 months Over 6 months ,705 3,889 Other payables and accrued charges 4,248 3,663 Gross amounts due to customers for contract work 5 9 Amounts due to associates Amounts due to joint ventures 3 10 Amounts due to holders of non-controlling interests Provision for product rectification Put option written on non-controlling interests Derivative financial instruments 4 17 At 31 December 8,442 7, Share capital Number Number of shares HK$ of shares HK$ (in million) million (in million) million Ordinary shares, issued and fully paid: At 1 January 1,832 1,477 1,832 1,477 Shares issued in respect of scrip dividends (Note) At 31 December 1,847 1,535 1,832 1,477 In accordance with Section 135 of the Hong Kong Companies Ordinance, the ordinary shares of the Company do not have a par value. Note: On 24 October 2017, the Company issued and allotted 14,905,804 shares at an issue price of HK$3.862 per share in respect of the interim dividend for the six months ended 30 June 2017 under the scrip dividend scheme. The 14,905,804 shares so issued ranked pari passu in all respects with the then existing issued shares except for the entitlement to the said interim dividend. As a result of and in accordance with Section 37 of Schedule 11 to the Hong Kong Company Ordinance, during the year ended 31 December 2017, the Company s share capital increased by approximately HK$58 million

22 13. Business Combinations The acquisitions completed during the year ended 31 December 2017 had the following effect on the Group s assets and liabilities on their respective dates of acquisition: HK$ million Cixi Business (Note (a)) Others (Note (b)) Total Property, plant and equipment Lease prepayments Intangible assets Inventories Trade debtors and other receivables Cash and bank deposits Borrowings (575) - (575) Trade creditors and other payables (353) (1) (354) Current tax payable - (1) (1) Deferred tax liabilities (270) (2) (272) Fair value of net assets acquired 1, ,046 Goodwill Total consideration 1, ,384 Less: consideration payable (293) (5) (298) Less: put options written on non-controlling interests (29) (5) (34) Less: forward liabilities on acquisition of non-controlling interest (225) - (225) Less: cash and cash equivalents acquired (98) (9) (107) Net cash outflow (a) On 21 July 2017, the Group entered into sale and purchase agreements (the SPAs ) to acquire 80% equity interest in two Mercedes-Benz ( MB ) dealerships in operation, 80% equity interest in one Audi dealership in operation and 100% equity interest in three new MB dealerships (collectively known as Cixi Business ) at a total cash consideration of RMB936 million (equivalent to approximately HK$1,101 million) subject to adjustments as stipulated in the SPAs with reference to the net profit after taxation amount as shown in the audited consolidated financial statements of Zhejiang Cijizhixing Motors Ltd. for the period from 1 July 2017 to 31 December Under the SPAs, the Group has recognised the forward liabilities and has written a put option on acquiring the remaining non-controlling interests. The acquisition was completed on 31 August

23 13. Business Combinations (Continued) (a) (continued) If the acquisition of Cixi Business had occurred on 1 January 2017, the Group s revenue and profit after tax for the year would have been approximately HK$51,646 million and HK$920 million, respectively. These amounts have been calculated by adopting the Group s accounting policies and adjusting the results of the relevant subsidiaries to reflect the additional amortisation and depreciation that would have been charged assuming the fair value adjustment to intangible assets, property, plant and equipment and lease prepayments had been applied from 1 January 2017, together with the consequential tax effects. The goodwill is attributable mainly to the benefit of skills and technical talents of the acquired businesses work force and the synergies expected to be achieved from integrating the entities into the Group s existing businesses. None of the goodwill recognised is expected to be deductible for income tax purpose. (b) The Group has completed an acquisition of a subsidiary during the year. Since it is relatively immaterial to both the Group s financial position and results of operation, details of this acquisition are not disclosed. 14. Comparative Figures Certain comparative figures have been adjusted to conform to current year s presentation

24 BUSINESS REVIEW OVERVIEW In 2017, Dah Chong Hong Holdings Limited ( DCH ) embarked on a path of enhanced operational excellence initiating vigorous measures to restructure the businesses, improve profitability and prepare a solid foundation for sustainable growth. As a result of these efforts, DCH achieved revenue of HK$50,506 million in 2017 (2016: HK$46,462 million) and an increase of 56.9% in profit attributable to shareholders totaling HK$802 million (2016: HK$511 million). The mainland China motor business, DCH s largest segment by profit and revenue, was the primary contributor to our strong performance as a result of the successful implementation of profitability enhancement initiatives, an ongoing strategy to increase exposure to the premium vehicle market and the acquisition of premium dealerships in Eastern China. As a result, segment revenue for the mainland China motor business increased by 6.8% while segment result from operations more than doubled to HK$888 million (2016: HK$356 million). Segment margin increased to 3.4% from 1.4% in While revenue from the Hong Kong and Macao motor business was stable, discounting to secure share in a market impacted by changes in government policy resulted in a 23.1% decrease in segment result from operations. With Hong Kong and Macao motor offsetting mainland China motor performance, the overall motor business segment result from operations was an increase of 43.2%. In June 2016, we expanded our portfolio with the acquisition of the consumer and healthcare distribution business conducted by Integrated Market Services Asia Limited ( IMSA ) and DCH Auriga Holding Limited ( DCH Auriga ) and its subsidiaries (collectively known as IMSA and DCH Auriga Group ), which significantly strengthened our FMCG distribution business in Hong Kong, introduced a profitable healthcare distribution business and extended the Company s geographical coverage to Southeast Asia. In 2017, DCH focused on integrating the acquisition to achieve operational synergies and rebranded the FMCG and healthcare distribution businesses as IMSA and DCH Auriga, respectively. With the consolidation of a full year of performance results from the acquisition, the overall consumer products business recorded increased revenue of HK$16,408 million (2016: HK$13,831 million). However, segment result from operations fell by 41.5% against 2016 as our restructuring and business enhancement program in the mainland China food business continued. As part of our growth strategy for the consumer products business, DCH jointly established Tamar Alliance Fund with CITIC Pacific to invest in companies in the consumer and healthcare sectors. The fund enables DCH to capture investment returns from brands serving the growing consumer and healthcare markets of greater China and Southeast Asia while leveraging our extensive distribution operations and expertise. In 2017, DCH also implemented Company-wide initiatives to streamline the management organisation, strengthen internal controls and reinvigorate corporate culture with performance-driven incentive structures. Recognising agility as a competitive advantage, we have begun to simplify, standardise, and centralise our IT infrastructure with a suite of advanced systems that include enterprise resource planning, business intelligence, warehouse management and customer relationship management systems. Improved information management will provide seamless connectivity and real time reporting to enable data-based decision making and help management better respond and respond to our dynamic markets

25 The mainland China motor business represents a significant part of our portfolio and will remain central to our strategy to achieve sustainable growth and profitability. In 2018, we will continue to explore opportunities to expand our dealership network in the premium motor segment, while serving the mass market with promising domestic brands and new energy vehicles. In the consumer products business, agency distribution in Hong Kong will provide a stable foundation and source of expertise as we continue our vigorous agenda of reform and restructuring in mainland China. Lastly, DCH will continue to invest in healthcare distribution to establish the Company as a market leader in Asia s growing healthcare industry. While our results demonstrate a marked improvement over previous years, business enhancement initiatives will continue to be an important focus in Encouraged by the effectiveness of our wide-reaching reform strategies, we will continue to fortify our businesses portfolio to achieve new levels of operational excellence, reviewing our structure, systems and processes to implement best practices across our geographies and business segments. With strengthened core competencies, nearly seven decades of market experience and the support of our parent company, CITIC Limited, DCH will continue on a path of growth and reform with a mandate to pursue performance excellence across our business segments. OPERATING RESULTS For the full-year 2017, revenue was HK$50,506 million (2016: HK$46,462 million) an increase of 8.7% against This increase was driven by the full year accounting of revenue from the rebranded IMSA and DCH Auriga Group and revenue growth in the mainland China motor business. Profit attributable to shareholders was HK$802 million (2016: HK$511 million) an increase of 56.9% against 2016 due to successful profitability enhancement measures in the mainland China motor business and the consolidation of a full year of results from IMSA and DCH Auriga Group. At the corporate level, profitability was further enhanced by initiatives to streamline the management hierarchy, the successful implementation of a tax review, the improvement in finance cost through favorable interest rate negotiation and the divestment of non-core assets

26 MOTOR BUSINESS As a dealer and distributor of motor vehicles, DCH represents more than 20 renowned automotive brands with a presence in mainland China, Hong Kong, Macao, Taiwan, Singapore and Myanmar. Leveraging decades of industry expertise, our vehicle sales business is supported by a wide portfolio of motor services in mainland China and Hong Kong including aftersales services, vehicle accessories trading, used car sales, vehicle leasing, motor financing, insurance agency, engineering projects, aviation support operations and the sales of luxury yachts. RESULTS OVERVIEW In 2017, segment revenue of the motor business grew by 4.5% to HK$34,073 million (2016: HK$32,598 million) due to the increased sales of premium and luxury vehicles in mainland China and the acquisition of three premium dealerships in Eastern China. In Hong Kong and Macao, sales recovered to 2016 levels in the second half of the year as strong model launches offset the impact of government policies including an electrical vehicle subsidy and new diesel requirements. Revenue in the other market segment decreased as a result of the closure of the Taiwan Audi business and reduced demand in Singapore. Segment result from operations for the motor business was HK$1,514 million (2016: HK$1,057 million) representing a significant increase of 43.2% as a result of successful profitability enhancement initiatives in mainland China which offset a 23.1% decrease in profit in Hong Kong and Macao

27 REVIEW AND OUTLOOK Mainland China DCH is one of the leading automotive dealer and distributors in mainland China with 80 4S shops and 14 showrooms retailing a diverse portfolio of motor brands in 38 cities spanning across 13 provinces and municipalities. This year, we were listed as 8 th in the top 100 Chinese Auto Dealer Groups by the mainland China Automobile Dealers Association in recognition of our business scale and market achievements. According to the China Association of Automobile Association, the mainland China passenger vehicle market grew by 1.4% in 2017 following double digit growth in 2016 incentivised by government tax rebates. However, the sales of premium and luxury vehicles outperformed the overall market, propelled by rising incomes and increasingly sophisticated consumer preferences vehicle sales by unit DCH Unit Sales Mainland China Market Unit Sales (000s) Change Change Passenger cars 98,763 95, % 24,720 24, % Commercial vehicles 4,418 4, % 4,160 3, % Total 103, , % 28,880 28, % Leveraging a favorable brand portfolio of premium European and Japanese brands, DCH unit sales of passenger cars grew above the market average at a rate of 2.9%. Segment revenue grew by 6.8% to HK$26,219 million (2016: HK$24,555 million) in accordance with our ongoing strategy to increase exposure to the growing premium vehicle segment. In July 2017, we strengthened our presence in the strategic Zhejiang province of Eastern China through the acquisition of an Audi and two existing Mercedes-Benz dealerships as well as the authorisations for three new Mercedes-Benz 4S shops. DCH commercial vehicle sales grew by only 1.6% as we reviewed opportunities to better structure our commercial vehicle business in mainland China to take advantage of the strong market growth. Segment result from operations more than doubled at HK$888 million (2016: HK$356 million) with segment margin of 3.4% against 1.4% in The improved performance is a result of wide ranging measures to improve the motor business. In 2017, DCH continued the implementation of a wide range of business and profitability enhancement measures including vehicle pricing management, inventory controls, effective omni-channel promotional activities, cross-selling programs, performance-based incentives and a focus on customer lifecycle management. The improvement initiatives also include a comprehensive IT upgrade for business management systems in 2017 and a new customer relationship management (CRM) system scheduled for implementation in the first quarter of

28 In 2017, aftersales services revenue increased by 7.5% and the number of vehicles serviced increased by 5.5% to 1,088,738 units. Commission income from motor financing referrals increased 32.9% and the DCH-owned finance lease portfolio grew by 43.7% to RMB723 million reflecting the growing consumer utilisation of vehicle financing. The auto rental business also delivered solid results after an extension of operations into Nanchang and now extends across 23 cities in mainland China. In 2017, the motor related businesses focused on enhancing the customer experience, streamlining operations, introducing seamless cross-selling programs and conducting staff training to enhance service. In alignment with our long-held strategy to develop service quality as a competitive advantage, DCH established the centralised DCH Motor Academy training program to provide continuous skilled training to our front line staff and repair shop technicians, sharing best practices across our 4S shop network. Outlook and strategy To build on the momentum of a successful year, we have outlined three strategic objectives to achieve our long term growth targets in the mainland China motor business. Optimise the vehicle brand portfolio. In order to enhance profitability and capture market growth opportunities, we will continue to rebalance the motor brand portfolio to increase our exposure to the premium and luxury segments while reviewing opportunities to serve promising domestic brands and new energy vehicles. Expand the dealership network. In our mid-term development plan, we aim to increase the number of 4S shops and widen our dealership network in mainland China, targeting a balanced portfolio of both premium and mass market brands. Grow the motor-related business. We will continue to strengthen and grow our motor-related businesses with cross-selling programs, the implementation of value-added services and expansion in the used car trading business, vehicle leasing and auto financing. Hong Kong and Macao DCH is the dealer and distributor of more than 13 vehicle brands in Hong Kong and Macao with a wide array supporting motor related services. In 2017, the passenger vehicle market in Hong Kong grew by 8.1% year-on-year in unit sales, reflecting a surge in electric and diesel vehicle sales related to the electric vehicle subsidy and new diesel registration requirements. Excluding electric and diesel vehicles, however, the passenger vehicle market in Hong Kong declined by 1.3%. Commercial vehicle unit sales decreased by 1.4% against strong 2016 sales related to ongoing subsidy programs to support new emissions requirements

29 2017 Vehicle Sales by Unit DCH (Hong Kong & Macao) Hong Kong Market Change Change Passenger cars (incl. EV & diesel) 6,993 6, % 37,298 34, % Passenger cars (excl. EV & diesel) 6,975 6, % 29,196 29, % Commercial vehicles 4,613 4, % 15,292 15, % Total vehicle sales 11,606 11, % 52,590 49, % Total (excl. EV & diesel) 11,588 11, % 44,488 45, % Despite a challenging first half, segment revenue from the Hong Kong and Macao motor business was stable at HK$5,684 million (2016: HK$5,664 million), an increase of 0.4% against DCH unit sales in Hong Kong and Macao increased by 2.7% with strong second half model launches from key brands, strong sales from key commercial vehicle brands and replacement purchases in Macao as the government offered a tax relief program for vehicles damaged by Typhoon Hato. In the commercial vehicle segment, DCH unit sales increased by 1.1% while the overall Hong Kong market fell 1.4% on the basis of a competitive product mix, lead times, and service quality built over decades of industry expertise. Segment result from operations was HK$422 million (2016: HK$549 million), representing a decline of 23.1%. Profitability was impacted by competitive pricing required to secure market share and clear inventory as the electric vehicle incentive pulled demand from similarly priced passenger vehicles and the expiry of the contract for our government-designated commercial vehicle testing centre. Margin was further affected by unfavorable average Yen exchange rates in the first half of the year. As part of our Company-wide objectives to strengthen our core competencies and achieve operational excellence, we focused on maximising customer value by improving the customer experience. DCH implemented a wide range of initiatives to improve convenience and comfort with facility and services upgrades in Hong Kong. For example, our aftersales business was able to shorten the average repair turnaround time while motor leasing introduced a new program to offer discounted rental cars for vehicles undergoing maintenance. We undertook measures to leverage our scale as a competitive advantage using our Kowloon Bay headquarters as a convenient sales and service destination while exploring ways to widen service capabilities in our many Hong Kong locations. In 2017, our motor related business was adversely affected by the contract expiration of our government-designated commercial vehicle testing center and the rapid expansion of competing passenger car testing centers. Conversely, the Princess Yachts business achieved record high revenue with the delivery of 14 vessels and the first contracted order for the Princess M-class super yacht which is scheduled for delivery in

30 Outlook and strategy The outlook for the Hong Kong and Macao motor business remains positive in 2018, with a strong pipeline of model launches. The Hong Kong motor business will continue to strengthen its operations in a stable market with the following strategic objectives. Secure market share in the commercial vehicle sector. In 2018, we aim to maintain our leading market position by continuing to support the implementation of new emission standards. Additionally, we will explore opportunities created by the rebound of tourism and opening of the Hong Kong-Zhuhai-Macao bridge to provide coaches and shuttle busses to a wide range of operators. Improve customer relationship management. In order to maximise the lifetime value of each customer, DCH will adopt a unified CRM platform to improve customer targeting, sales funnel management and conversion rate monitoring. The system will track the customer s needs through the vehicle ownership cycle, enabling us to provide targeted service offerings and timely promotions based on the vehicle and owner profile. Enhance aftersales and maintenance services. DCH will continue to promote quality and service with initiatives including service center enhancements, additional car detailing services, shortened vehicle service appointment lead time, reduced vehicle repair turnaround time and extended Saturdays and holiday service hours. Build online-to-offline connectivity. We will amplify promotion effectiveness by strengthening our digital marketing capabilities with an emphasis on online-to-offline connectivity. To enhance customer convenience, we will review opportunities to leverage our extensive network and diverse range of motor services to build effective cross-selling programs and digital services. Build the motor-related business pipeline. In 2018, we will continue to leverage our motor expertise to provide services for private and public projects, including fleet upgrades, machinery installation and aviation services. For example, DCH has been awarded as the sole operator of ground service equipment (GSE) maintenance services in the Hong Kong Airport Authority s midfield GSE Pooling Scheme for a period of 15 years. DCH will also explore opportunities to partner with the Hong Kong government to support the Hong Kong Smart City program, which aims to enhance smart mobility with intelligent, environmentally-friendly transport systems. Other markets The other markets segment of the motor business includes commercial vehicle sales and services in Taiwan, Singapore and Myanmar. In 2017, segment revenue from other markets decreased 8.8% to HK$2,170 million (2016: HK$2,379 million) following the closure of our Audi dealership in Taiwan and the expiration of diesel replacement incentives in Singapore. Conversely, segment result from operations improved by 34.2% at HK$204 million (2016: HK$152 million) with the streamlined business portfolio offsetting reduced demand in Singapore

31 Taiwan Our Taiwan motor business comprises of the distribution and sales of Isuzu vehicles, assembling semi-knocked down (SKD) models and after-sales services. After a review of our operational profile, we closed our Audi operations in Taiwan which reduced revenue against 2016 while segment result from operations more than doubled. Our commercial vehicle sales outperformed the market due in part to new initiatives to better serve large corporate fleets. In 2017, we took steps to expand assembly operations and improve service quality. DCH has obtained the license to produce more SKD models in Taiwan to increase product competitiveness, shorten delivery time and improve overall customer satisfaction. Additionally, service center staff training was upgraded in cooperation with Isuzu to improve technical skills and enhance customer satisfaction. In 2018, the Taiwan motor business will continue to explore opportunities to expand its portfolio and enhance customer convenience with an emphasis on digital platforms. Singapore In Singapore, our motor business includes the distribution of Isuzu commercial vehicles, after-sales services, car leasing and parts trading. In 2017, segment revenue decreased with unit sales due to weakened demand for commercial vehicles following the expiration of a government incentive scheme to encourage the replacement of aged diesel vehicles and a slowdown in infrastructure development. Segment result from operations fell due to reduced sales and strategic inventory clearance in advance of the implementation of Euro VI emission standards. In 2018, to maintain our market share and profitability, we will focus on enhancing our product and service quality, while launching new models in compliance with the new emission standards. CONSUMER PRODUCTS BUSINESS Committed to bringing our customers quality products, DCH distributes and provides supply chain services to over 1,000 brands in a diverse range of product categories including food, fast moving consumer goods (FMCG), healthcare and electrical appliances. Our businesses extend across agency distribution, commodity trading, brand development, retail and manufacturing with operations in Hong Kong, mainland China, Macao, Taiwan, Japan, Singapore, Thailand, Malaysia, Indonesia, the Philippines and Brunei

32 RESULTS OVERVIEW In 2017, segment revenue from the consumer products business increased 18.6% to HK$16,408 million (2016: HK$13,831 million), reflecting the consolidation of a full year of IMSA and DCH Auriga Group results. Segment result from operations was HK$165 million (2016: HK$282 million) a decrease of 41.5% due primarily to the performance of the food and FMCG business in mainland China. Segment result from operations in Hong Kong and Macao decreased by 13.2% as margin pressure affected the profitability of our food commodity trading business, a food manufacturing centre was relocated and our electrical products division was adversely impacted by additional warehousing costs. With the consolidation of IMSA and DCH Auriga Group, the consumer products business now represents 32.5% of the DCH portfolio by revenue and increase of 2.7 percentage points from Hong Kong and Macao is the largest segment by region representing 17.4% of total DCH revenue, up from 15.6% in The other markets segment has also increased from 3.9% to 5.7% of DCH total revenue while the mainland China segment decreased from 10.3% to 9.3%. REVIEW AND OUTLOOK Food and FMCG Products Food and FMCG comprises the largest segment of the consumer products business and consists of an extensive FMCG distribution network, commodity trading, food manufacturing and retail. With more than 65 years of operations, DCH represents over 600 food and FMCG brands distributing more than 15,000 products into three geographical segments, Hong Kong and Macao, mainland China and other markets. As our largest segment, Hong Kong is a stable and mature market while mainland China and Southeast Asia represent growth opportunities as we continue to integrate, enhance profitability, increase our scale and rationalise our operational portfolio